Lyxor has launched the Lyxor Green Bond UCITS ETF (Euronext: CLIM), the world’s first ETF to offer exposure to the investment grade green bond market. Green bonds are sovereign, supranational or corporate fixed income instruments that dedicate the proceeds raised through issuance to enhancing environmental sustainability.
The Lyxor Green Bond UCITS ETF invests in EUR or USD denominated bonds from sovereign, supranational or corporate issuers that dedicate the proceeds raised through issuance to enhancing environmental sustainability.
Arnaud Llinas, Head of ETFs & Indexing at Lyxor commented: “Lyxor is committed to addressing the challenges of energy transition, and servicing the growing demand for responsible investments. As one of Europe’s great ETF pioneers, we are well placed to help investors achieve their environmental goals. This Green Bond ETF marks an important first step in our ambition to offer a full suite of innovative environmental, social and governance themed investments.
The ETF tracks the Solactive Green Bond EUR USD IG Index, launched by Solactive in February 2017.
The index harnesses the global green bonds data capabilities of Climate Bonds Initiative, an investor-focused not-for-profit working to mobilize bond markets for climate change solutions. The index universe comprises all USD and EUR denominated investment grade bonds that have been defined as green bonds by the Climate Bond Initiative. Floating rate notes, inflation linked bonds, convertible bonds and municipal bonds are excluded from potential selection.
According to the organization’s Green Bond Principles, green bonds are “… instruments in which the proceeds will be exclusively applied (either by specifying Use of Proceeds, Direct Project Exposure, or Securitization) towards new and existing Green Projects – defined here as projects and activities that promote climate or other environmental sustainability purposes.”
The group’s Climate Bond Standards take these principles a step further by creating a formal certification framework, which ensures that proceeds are only used for low-carbon, and climate enhancing projects, and that ongoing transparency and reporting requirements are met.
To be included in the index, bonds must have at least €300m or $300m outstanding for bonds denominated in euros or US dollars, respectively, with time to maturity of at least 12 months.
Index components are weighted by market value outstanding with corporate issuers and government issuers capped at 5% and 10% respectively.
As of 2 March 2017, Lyxor’s new ETF provides access to a portfolio of 116 EUR and USD Investment Grade ‘Labelled’ Green Bonds. Approximately 40% of the index is dedicated to bonds with AAA ratings, 12% to AA-rated bonds, 25% to A-rated bonds and 20% to BBB-rated bonds. The yield to maturity of the index is 1.4% and its modified duration is 5.8 years.
The green bond market is growing rapidly with new issuance increasing from $11bn in 2013 to $81bn in 2016, taking total sector AUM to $170bn. Growing investor appetite for socially responsible investments, in conjunction with the introduction of new regulation such as France’s French Energy Transition Law, have been key drivers of this growth.
According to Climate Bonds Initiative, new issuance in 2017 may reach up to $150bn, adding approximately 90% organic growth to the sector.
The physically-replicated ETF charges total fees of 0.25%.